India’s central bank, the Reserve Bank of India (RBI), is planning to tighten the rules for giving out loans against gold. This is because the gold loan sector has been growing very quickly, and the RBI wants to make sure everything is done properly and safely. According to sources familiar with the matter, the RBI will ask banks and other lenders to be more careful when giving out these loans. They will need to check the background of borrowers more thoroughly and confirm that the gold being used as collateral actually belongs to the person taking the loan.
The RBI is doing this to ensure that the gold loan sector grows in a controlled way and that no one is breaking the rules or engaging in unfair practices. One source explained that the RBI wants to protect financial stability and stop any unethical behavior in this sector.
The RBI has noticed that gold loans have been increasing very fast—by 50% since September 2024—much faster than other types of loans. This is partly because rules for other types of loans, like personal loans without collateral, have become stricter. In India, where gold is very important culturally, people often buy gold during festivals and weddings. With gold prices at record highs, taking loans against gold has become more attractive.
However, the RBI has found some problems in the gold loan industry. For example, some banks are not following the proper rules for checking the value of gold or verifying borrowers. In some cases, banks have even auctioned off gold without informing borrowers who failed to repay their loans. The RBI also found that some fintech companies, which work with banks, were handling tasks like collecting and weighing gold, which should be done by the banks themselves.
To fix these issues, the RBI wants all banks to follow the same rules. This includes making sure that gold auctions are done fairly and that the money from gold loans is used properly. The RBI’s goal is to create a level playing field and ensure that no one can bypass the rules. This will help protect borrowers and maintain trust in the financial system.
